So you’ve had it working for someone else. That’s it;
never again. Now it’s your time. You are finally going to do what you have
always dreamed of – you are going to buy your own business. Great plan and very
exciting! So you start scouring the online business for sale listings and after
endless hours looking you realize four things:
- You cannot believe how many businesses are listed for sale
- There is absolutely no rationale to the terminology, asking prices, financial information or details about the businesses in the ads in the online business for sale databases
- Regardless of how many inquiries you submit, you receive very few answers
- There has to be a better way to find good businesses because your initial strategy is not working - you are spending a ton of time searching and not making any progress
I hate to age myself or live
in the past, but many times I think the business for sale marketplace was
better off without the Internet. Yes, the glory days when you found businesses
the old fashioned way by networking, tapping into brokers or scouring newspapers,
trade journals and industry associations for leads. On the one hand, the
Internet has been nirvana for sellers and business brokers since businesses can
be advertised for a fraction of the prior costs and the buyer pool is now
global. The downside is that directories are flooded with listings and
prospective buyers pay the price, not monetarily per se, but with potentially
wasting enormous amounts of time looking through listings that are not worth
buying.
In
some categories like the business for sale marketplace, the Internet can be a
deep black hole with no end to the amount of generic and often times useless
information, and so the process of trying to find a business can result in
nothing more than an endless looking exercise. Thankfully, there is a better
approach.
While the online databases like Bizquest and Businessesforsale can be an excellent starting point and can yield results for a some business seekers, to really gain access to a wide selection of opportunities, prospective buyers cannot limit their search to strictly what is available online. They have to expand their hunt and modify their strategy by conducting direct solicitations of businesses not publicly listed for sale.
Richard Gadberry, a Dallas-based mergers and acquisitions advisor put the buyer search exercise into realistic yet sobering terms: “According to the IBBA, the governing body of our industry, the percentage of listings that won’t sell is more like 90%. Therefore, it is a daunting task and frustrating for a buyer to wade through the numerous listings that are overpriced, have unsupported cash flow, lack information, and brokers who are not well trained. So the best route is to assist a buyer with a direct search, because the best listings are not on the internet.”
A critical component to an effective direct search is focus. Until a prospective buyer has established a targeted industry and price point, their search is a shotgun approach. While keeping an open mind is a good character trait, it can be a detriment for a prospective buyer because a laser-like focus is necessary.
Whether a buyer decides to conduct a search on their own or engage a broker to do so, clearly defining the scope of work is a key component according to Mr. Gadberry. “Most buyers have not thought through the kind of business, where it might be located, what skills are involved, what they can afford, if they are financeable, if they have the experience required, what they would be willing to pay and therefore their expectations of market value is out of line.” The advantages of using an experienced broker versus going it alone will be in nailing down specific criteria that target businesses must have in place. This will eliminate a lot of wasted time and make the search cost economically feasible. As Mr. Gadberry explains, “a good broker will qualify the buyer through an interview process, and a needs analysis and determine if we can bridge the gap between expectations of the buyer and the reality the market.”
When Albert took an early retirement package from his executive position with a pharmaceutical company in Maryland three years ago, he decided to pursue purchasing a durable medical equipment company. His initial plan to search online was helpful to the extent of him being able to look into several businesses on the market, but none met his criteria. He decided to approach businesses directly. He assembled a list of DME companies in the mid-Atlantic region, drafted a professional letter explaining the criteria he was looking for including minimum revenues, profit levels, years in business and preferred client base. He purchased great looking stationery and had each letter personally addressed to the owner and sent them via FedEx to 25 target companies. While he only received four replies, three of them met his exact requirements and he closed a deal within two months of his original letter. Recently, when he wanted to acquire a business to dovetail into his existing one, he engaged a broker, gave her very specific guidelines of what he wanted, and had her conduct the search, which again had excellent results and led to another acquisition.
Unlike Albert, too often prospective business buyers have great intentions to acquire a business but they are not able to get their criteria narrowed down, and they turn the buying process into an endless looking exercise. An experienced broker-intermediary can be the ideal resource to assist a buyer in developing a bona fide search strategy and potential business profile.
Albert’s results demonstrate what Mr. Gadberry believes to be one of the most important strategies of a direct solicitation. According to him, “the more specific the criteria, the better the search results. The ‘anything, anywhere’ criteria will be frustrating for the buyer and broker. A very specific search – this price – this location – this industry – this timeframe – these terms and conditions will generate fewer responses, but the ones that do respond will be more in line with the buyer’s search criteria.”
In addition to being as precise as possible, direct solicitations work because of an emotional reason. Pretty much every business owner hopes to one day sell out for a lot of money. When a serious solicitation crosses their desk, it can be intriguing. Any owner who has aspirations of selling within the next year or two will surely respond.
So the lesson is simple: once you can focus in on the precise criteria and fundamentals you want in a business, a direct solicitation can yield incredible results and allow you to bypass the frustrating hours of searching online databases and countless businesses, the vast majority of which will never even sell.
Richard is President of Diomo Corporation (diomo.com) – The Business Buyer Resource Center™ and author of the How To Buy A Good Business At A Great Price© series.